What Tax Deductions Can You Claim on an Investment Property?
You can claim most of the costs of owning and running a rental property against the income it earns. These are the everyday deductions, and they reduce the tax you pay on your rental income and, often, your salary.
The common ones include:
- Loan interest on the money you borrowed to buy the property.
- Council rates, land tax and water charges.
- Building and landlord insurance.
- Property management and letting fees.
- Repairs, maintenance and pest control.
- Body corporate or strata fees, where they apply.
- Depreciation on the building and its fittings.
The first six are cash costs you actually pay. The last one, depreciation, is different, and it is the one most investors leave on the table.
What Is Property Depreciation (the Deduction Most Investors Miss)?
Property depreciation is the decline in value of a building and its fittings over time, which the Australian Taxation Office lets you claim as a deduction. You do not spend anything to claim it. As the building ages and the fittings wear, you write down that value each year against your income.
There are two parts to it. The first is capital works, known as Division 43, which covers the structure itself: the concrete, bricks, roof and permanent fixtures. The second is plant and equipment, known as Division 40, which covers the removable fittings: carpets, blinds, ovens, air conditioning and the like. A new build lets you claim both in full, and that is where the large first-year numbers come from.
How Does Depreciation Work on an Investment Property?
Depreciation works by spreading the value of the building and fittings across their expected life, then letting you claim a slice each year. Capital works are generally claimed at 2.5% a year for 40 years, while plant and equipment items are claimed faster, based on each item’s effective life.
Here is a worked example, and every figure is an estimate. Take a brand-new build around $650,000. A quantity surveyor might assess the capital works at roughly $10,000 a year, and the plant and equipment at a few thousand more in the early years. That can add up to an EST. $12,000 to $15,000 of depreciation in the first full year. If your marginal tax rate is 37%, that deduction is worth an EST. $4,400 to $5,500 back to you, without spending a cent to earn it. The table below shows why a new build claims so much more than an established one.
| Feature | Brand-new build | Established (second-hand) |
|---|---|---|
| Capital works (Division 43) | Full 2.5% a year for 40 years | Only if built after 1987, and only the years left |
| Plant and equipment (Division 40) | Full claim on the new fittings | Not claimable if bought second-hand (2017 rule) |
| Typical first-year deduction | EST. higher, often $12,000 to $15,000 | EST. lower, sometimes little to none |
| Worth a depreciation schedule? | Almost always | Depends on the age and fittings |
Why Brand-New Builds Deliver the Biggest Depreciation Deductions
The gap between new and established comes down to a rule change in 2017. Since then, investors can no longer claim depreciation on second-hand plant and equipment. So if you buy an established home, the previous owner has already used up much of the Division 40 benefit, and you cannot restart it.
A brand-new build has no previous owner. You claim the full plant and equipment schedule from day one, plus the full 40 years of capital works. That is why the same $650,000 spent on a new build can produce far larger deductions than on an older house, and why the after-tax cash flow is usually stronger. It is one of the clearest tax benefits of an investment property that is brand new rather than second-hand.
Brand-new stock featured this week, all single-contract co-living homes. Because each one is brand new, it carries the full Division 40 and Division 43 entitlement, so the first-year depreciation sits at the top of the range. Ask us for a depreciation schedule on any of them.
All are brand-new, single-contract 5 bed co-living homes (205.60m² build) with the builder’s 75% five-year rental guarantee (terms and eligibility apply). Yields are gross and every figure is an estimate that depends on the market, the tenancy mix and your costs. Depreciation depends on the individual property, so ask us for a schedule. Land is registered on all except Kilmore, where the title is due March 2027.
Want to see the EST. depreciation on a brand-new build before you buy? A quick call is the easiest place to start.
Book a quick callDo You Need a Depreciation Schedule, and What Does the ATO Expect?
To claim depreciation properly, you need a depreciation schedule prepared by a qualified quantity surveyor. It lists every claimable item and the amount you can write down each year, so your accountant can apply it at tax time. The ATO expects the figures to be measured and documented, not guessed.
A schedule usually costs a few hundred dollars as a one-off, and the fee itself is tax deductible. On a new build the deductions almost always outweigh that cost many times over in the first year alone. Every property we sell comes with a depreciation schedule, so our investors know their numbers from the start.
Depreciation, Negative Gearing and the 2026 Budget
Depreciation sits alongside the wider tax picture, and that picture is shifting. The May 2026 Federal Budget proposes to wind back negative gearing on established homes from 1 July 2027, while eligible new builds keep their concessions. We explained the detail in our guide to the 2026 Budget negative gearing changes.
If those measures pass as proposed, the depreciation advantage of a new build becomes even more valuable, because new builds keep both the deductions and the gearing concessions while established property loses ground. None of it is law yet, so please treat this as general information rather than tax advice.
Want your numbers, including EST. depreciation, on one page? We can walk through them with you, calmly.
Book a quick callInvestment Property Tax Deduction FAQs
Can you claim depreciation on a new build?
Yes, and a new build gives you the most to claim. You can claim capital works at 2.5% a year for 40 years, plus the full plant and equipment schedule on the new fittings. Because there is no previous owner, none of the plant and equipment benefit has been used up, so the first-year deduction is usually the largest available.
What can I claim on an investment property?
You can claim most costs of owning and running the property, including loan interest, council rates, land tax, insurance, property management, repairs and maintenance, strata fees, and depreciation on the building and fittings. A registered tax agent can confirm what applies to your situation.
How much depreciation can I claim?
It depends on the building cost and the fittings, so a quantity surveyor measures it for your property. As a rough guide, a brand-new build around $650,000 might produce an EST. $12,000 to $15,000 of depreciation in the first full year. Every figure is an estimate and should be confirmed in a depreciation schedule.
Is a depreciation schedule worth it?
On a new build, almost always. The schedule is a one-off cost of a few hundred dollars, the fee is tax deductible, and the deductions it unlocks usually outweigh the cost many times over in year one. On an older property with few original fittings, the benefit can be smaller, so it is worth checking first.
How Positive Income Properties Helps You Maximise Your Deductions
Positive Income Properties researches and supplies pre-packaged, brand-new investment properties designed to be tax-effective from day one. Because the stock is new, it carries the full depreciation entitlement, and we include a depreciation schedule on every property bought through us, so you know your deductions before you commit. We also connect you with accounting and finance partners who put those numbers to work.
So before you judge a property on its price, the smart step is to see its after-tax position, depreciation included, on paper.
See the after-tax numbers on a brand-new build that suits your budget. A quick call is the easiest place to start.
Book a quick callTo talk through the tax benefits of a brand-new investment property, you can also contact Positive Income Properties on +61 468 037 484 or bookings@positiveincome.com.au.
Disclaimer: This article is general information only. It is not tax, legal or financial advice. Return, yield and depreciation figures are estimates, not guarantees, and depend on the property and your circumstances. The 2026 Budget measures referenced are proposed and not yet law; detail and timing may change. Positive Income Properties is not a financial adviser. Please seek independent legal, financial and taxation advice, including a depreciation schedule from a qualified quantity surveyor, before making any investment decision.
Author: Gil Elliott, Managing Director and Founder of Positive Income Properties, with nearly four decades of experience across the real estate and marketing industries.
Gil Elliott is the Managing Director and Founder of Positive Income Properties. Gil has a rich background in business consulting and property investment. All of these he gained in his nearly four decades of experience in the real estate and marketing industries.
